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The two-judge majority, in an opinion written by
Chief Judge Diane S. Sykes, held that the small, closely held corporations were
“persons” within the meaning of the Religious Freedom Restoration Act (RFRA),
42 U.S.C. § 2000bb, and were entitled to assert, along with their owners, that
the mandate substantially interferes with their free exercise rights.

The preventive services mandate, also known as the contraceptive mandate,
requires employers with 50 or more employees to provide health plans that cover
contraceptive drugs, including emergency contraception, contraceptive devices
and related services at no cost to their employees.

The Seventh Circuit
joined the U.S. Court of Appeals for the Tenth Circuit, which held June 27 that
two small, for-profit corporations were “persons” entitled to bring suit under
RFRA and that they were likely to succeed on the merits of their claim . The
U.S. Court of Appeals for the Third Circuit July 26 found for the
administration, saying secular corporations don't engage in religious exercise
.

Also ruling for the Obama administration was the U.S. Court of Appeals
for the Sixth Circuit, which held companies aren't “persons” protected by RFRA
. More recently, the U.S. Court of Appeals for the District of Columbia Circuit
issued a split decision holding that, although the companies themselves may not
challenge the mandate, their owners may do so .

Petitions for review
have been filed in the U.S. Supreme Court in all four cases .

Companies
Challenge Mandate

The Seventh Circuit decided two cases, consolidated
for purposes of appeal, Korte v. Sebelius, No. 12-3841, and Grote v.
Sebelius, No. 13-1077. In both cases, the plaintiffs were Catholic families
and their closely held corporations, one a construction company in Illinois
(Korte & Luitjohan Contractors Inc.) and the other an automobile safety
systems manufacturing company in Indiana (Grote Industries Inc.).

The
companies are secular and for-profit but, according to the court, are operated
in conformity with their owners' religious beliefs. The owners “follow the
teachings of the Catholic Church regarding the sanctity of human life from
conception to natural death and the moral wrongfulness of abortion,
sterilization, and the use of abortifacient drugs and artificial means of
conception,” the court said.

The plaintiffs filed lawsuits alleging that
the contraceptive mandate violates their rights under RFRA and the First
Amendment's free exercise clause because the coverage required by the provision
conflicts with their religious convictions.

The trial courts in both
cases denied the plaintiffs' motions for preliminary injunctions . The Seventh
Circuit, however, granted injunctions pending appeal in both cases .

Ruling Against Administration

Ruling on the appeals from the
preliminary injunction denials, the Seventh Circuit held that both the
companies and their owners may challenge the mandate. It further held that
compelling the companies to cover the contraceptive services substantially
burdens their free exercise rights. The court reversed the trial courts'
decisions and remanded with instructions to enter preliminary injunctions
barring the government's enforcement of the mandate against the companies.

The court saw the cases as presenting two issues: Is a secular, for-profit
corporation a “person” under RFRA and does the contraceptive mandate
substantially burden the free exercise rights of either the individuals or the
corporations?

The court answered both questions in the affirmative: The
corporate plaintiffs are “persons” for purposes of RFRA, and the contraceptive
mandate substantially burdens the religious exercise rights of all the
plaintiffs.

Before reaching those questions, however, the court said
both the companies and their owners had standing to challenge the mandate. The
companies would be affected directly by the provision because it would force
them to include contraceptive coverage in their employee health plans or face
“onerous” penalties. The Kortes and the Grotes, the controlling shareholders,
also had standing, it said, because the mandate's “indirect effect on [their]
financial interests” was a “concrete injury.”

Additionally, the court
said, the individual owners had an “intangible but no less concrete injury to
their religious-exercise rights” in that the mandate would force them to
purchase coverage that conflicted with their beliefs, “albeit as agents of
their companies and using corporate funds.”

“Compelling a person to do
an act his religion forbids, or punishing him for an act his religion requires,
are paradigmatic religious-liberty injuries sufficient to invoke the
jurisdiction of the federal courts,” the court said.

The shareholder
standing rule, which holds that shareholders may not sue to enforce the rights
of the corporation, didn't apply here, the court added, because an exception to
the rule allows “a shareholder with a direct, personal interest in a cause of
action to bring suit even if the corporation's rights are also implicated.” The
Kortes and Grotes fell “comfortably within the exception,” it said.

Companies Are 'Persons.'

One central question, the court said, is
whether RFRA applies to protect the rights of corporations. The law states that
the government “shall not substantially burden a person's exercise of religion
even if the burden results from a rule of general applicability,” unless the
application of the burden “(1) is in furtherance of a compelling governmental
interest; and (2) is the least restrictive means of furthering that compelling
governmental interest.”

The government argued that RFRA doesn't apply
because corporations aren't “persons” under the statute. The court disagreed.
Although RFRA doesn't define “person,” the Dictionary Act states that, in
determining the meaning of any legislation, “person” includes corporations
“unless the context indicates otherwise.” The court said that “[n]othing in
RFRA suggests that the Dictionary Act's definition of 'person'” doesn't include
corporations exercising religious rights.

The court also made two
“doctrinal points,” saying that the free exercise clause protects religiously
motivated conduct, as well as belief and exercise, and that individuals and
organizations, whether incorporated or not, can exercise religion. It is
“common ground,” the court said, that nonprofit religious organizations
exercise religion, so “unless there is something disabling” about seeking
profit, for-profit corporations also have religious rights.

The court
acknowledged that the “Supreme Court has never considered whether a for-profit
corporation may assert a free-exercise claim” but said the court's approval of
the free-exercise rights of individuals engaged in profit-making activities
suggested that it would see the matter in the same way as the present court.
The Supreme Court's prior decisions “show that far from categorically excluding
profit-seekers from the scope of the free-exercise right, the Supreme Court has
considered their claims on the merits, granting exemptions in some and not in
others based on the compelling-interest test,” the court said.

Substantial Burden

The court went on to find that the contraceptive
mandate substantially burdens the plaintiffs' exercise of religion. At a
minimum, the court said, a substantial burden exists when the government
requires a person to perform acts at odds with his fundamental religious
beliefs. A burden on religious exercise also exists when the government puts
“substantial pressure” on a person to modify his behavior in a way that
violates his religious beliefs.

There “can be little doubt that the
contraception mandate imposes a substantial burden on the plaintiffs' religious
exercise,” the court said. If they don't comply with the mandate, the court
said, the companies would face a fine of $100 per day per employee, leaving the
Grote plaintiffs with a potential liability of almost $17 million.

The
court also said the contraceptive mandate failed the compelling interest test.
The two public interests identified by the government, that the mandate is
needed to promote public health and gender equality, are too general, it said.
“There are many ways to promote public health and gender equality, almost all
of them less burdensome on religious liberty,” the court noted.

It
acknowledged the legitimacy of the government's stated interests but said the
government had “not even tried” to show that the mandate is the least
restrictive means of furthering those interests.

Dissent

Judge
Ilana Diamond Rovner, in a lengthy dissent, argued that neither the companies
nor their owners may avoid compliance with the contraceptive mandate on the
ground that it interferes with their religious exercise.

Rovner called
the majority's holding “an unprecedented and unwarranted re-conception of both
what the free exercise of religion entails and what constitutes a substantial
burden on that exercise.” The majority “extends a highly personal right to a
secular corporation, a man-made legal fiction that has no conscience enabling
belief or worship,” she wrote.

The majority's decision also “permits the
plaintiffs to invoke their free exercise rights offensively rather than
defensively, in a way that circumscribes the rights Congress has given to
employees, by permitting the corporate employers to rewrite the terms of the
statutorily-mandated health plans they provide to their employees,” Rovner
said. “As a result, employees are left without a highly important form of
insurance coverage that Congress intended them to have.”

Rovner said the
majority's decision “establishes a precedent which invites free-exercise
challenges to a host of federal laws by secular corporations which, in reality,
have no religious beliefs of their own and cannot exercise religion.”

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